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Standard Pacific On Decline Despite Efforts

The woes of the national housing market continue to impact Irvine-based Standard Pacific Corp., whose stock hit a nearly four-year low this month.

Adding insult to injury, a drop in 2006 revenue amid the housing slump got Standard Pacific booted from this year’s Fortune 500.

A year ago, Standard Pacific marked its first inclusion in the Fortune 500, coming in at No. 493. That followed a tripling of revenue during the prior five years.

This year, Standard Pacific,the country’s 11th largest homebuilder,missed the cut for the prestigious list, coming in at No. 533 on the broader Fortune 1000.

The company’s decline has been dramatic, if not unexpected. Standard Pacific has spent much of the year getting rid of land, cutting building costs, offering incentives to buyers and dealing with slow sales in key markets such as California, Texas and Florida.

In the first quarter, the company took charges of $130 million to reflect land values that aren’t what they used to be, with $52 million of the charges related to holdings in California.

Standard Pacific’s stock,like that of most of its homebuilding peers,is reflecting the company’s slimmed-down operations.

Shares last week were off nearly 40% since February and down 60% from the industry’s heyday in mid-2005. The company had a market value of about $1.3 billion last week.

The housing slowdown and Standard Pacific’s stock slide have some analysts questioning whether a private equity firm could emerge as a buyer.

While the company’s “aware that there is interest,” Chief Executive Stephen Scarborough said late last week that it hasn’t been in any talks.

“We like the path we’re on,” he said.

If a turnaround is expected in the near future, Standard Pacific’s figures aren’t showing it. Last week, the company reported worse than expected orders for new homes in April and May.


Orders Down

New home orders, where buyers enter a pact to buy a home before it’s finished, were down 16% from the year-ago period, due in large part to slumping business in Florida and Arizona.

In California, where the company started selling at a number of developments, orders were up more than 13% in April and May.

Despite “seeing some energy” in California, overall home orders in April and May were off nearly 20% from the company’s business plan, executives said.

Along with regions of Texas, Arizona and Florida, the company blames underperforming areas such as the Inland Empire for the difference between projections and reality.

“The degree to which the (Inland Empire) market is correcting is greater than we expected,” Scarborough said last week at a New York investor conference.

There’s also fallout from the subprime mortgage collapse, Scarborough said.

“Certainly the impact of the subprime tightening has impacted some of our more affordable markets,” including Tampa, Fla., Phoenix and San Antonio, Texas, he said.

There are some positive signs.

The company’s cancellation rate from buyers backing out of orders was 28% in April and May, down from 35% a year earlier.

In California, the cancellation rate was 29%, down from 42%.

The number of prospective buyers at projects across the country also is strong, up nearly 20% from a year earlier.

“Buyers are out there looking for a house,” Scarborough said. “They like what (they’re) seeing, but haven’t gotten comfortable with the pricing they’re seeing. We need to work harder to convert that traffic.”

The company is offering increased fees to brokers as one way to boost sales.

Standard Pacific has about 57,000 home lots for current and future projects. That’s down from about 74,000 at the end of 2005.

“We’ve walked away from several thousand lots over the last year or so,” said Andrew Parnes, the company’s chief financial officer.

The company’s employee count is down 15% from a year earlier. Like other builders, it’s asked subcontractors to lower prices to bring down construction costs.

In some cases, Standard Pacific has “de-spec’ed” its homes, cutting pricey features to make houses more affordable.

It also plans to build fewer houses on speculation at its developments. The typical Standard Pacific community has three homes built but not sold. The company would like to get that average down to two.

Standard Pacific counts operations in six of the top seven growing markets in the country, and in 16 of the top 25 markets.

“We’ve got a sound footprint” to grow, Scarborough said.

He cited the Chicago and Washington, D.C., regions as two new markets that might be of interest down the road.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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